MOD White Paper, open competition, and the procurement elephant in the room

The UK’s Ministry of Defence published a White Paper yesterday -  National Security Through Technology: Technology, Equipment, and Support for UK Defence and Security.

Now, experience tells us that there are two types of White Paper. There are those that highlight a change of policy and strategy, and have some real implications for the way in which Government actually goes about its work.  Then there are those that are issued because they are expected; a commitment was made, or a politician promised it in a speech.

At first sight.. we’ll hedge our bets on this one. We were particularly surprised to see nothing about the future of DE&S for  a start – more on that later.

The issue that is being presented as the most significant does not appear to be very different in reality from the previous strategy. Here’s the “significant” statement;

Wherever possible, we will seek to fulfil the UK’s defence and security requirements through open competition in the domestic and global market, buying off-the-shelf where appropriate… we will also take action to protect the UK’s operational advantages and freedom of action, but only where this is essential for our national security.

So the presumption is to buy on the basis of competition and best value, which may often mean “off the shelf”, even if it’s from manufacturers in France, the US, Argentina, Israel..   Now many procurement people would welcome this focus on value for money rather than preserving British jobs or capability, but it will be interesting to see whether this holds up the first time a UK manufacturer loses out and screams blue murder about jobs, national interest and so on. Look at the fuss about the Bombardier / Siemens train procurement, and that didn’t have the emotive aspects that defence always carries.

Two other observations; the commitment to spend at least 1.2% of the defence budget on R&D does not look like much of a positive!  MOD’s budget is around £44B so that makes the minimum R&D spend some £520M – whereas according to this report it was £2.6B back in 2006! So this looks like a commitment merely that it won’t be slashed much further after several years in which it has declined steadily.

In terms of SMEs, MOD actually has a pretty good story to tell based on their historical work in this field, and despite the inherent difficulties of awarding equipment contracts to small firms. And  there are a couple of good new initiatives described here: the threshold for advertising opportunities has been reduced by 75% (to £10,000) and they’re now on Contracts Finder; they’ve revised internal guidance to ensure that SMEs are not rejected at PQQ “on the basis of rigid turnover-to-contract value ratios without proper assessment of companies’ actual capacity and potential”; and MOD have “created a dedicated SME group in the new Defence Suppliers Forum, chaired by a MOD Minister, to provide a better ‘voice’ for small suppliers”.

There’s also a focus on greater and better use of e-Procurement, and we’ll certainly come back to the discussion around SMEs – there is some interesting material in the Paper.

But finally, the armour-plated military elephant in the room is the lack of any announcement today around the future structure of MOD procurement – what does Bernard Gray, Chief of Defence Materiel, want to do with the Defence Equipment and Support organisation? Privatise it? Get into jvs or outsourcing arrangements? Become a Trading Fund?

The FT, reporting here last week, seemed to think that would be part of this White Paper. But nothing. This is the nearest we get to it:

At present, the capability sponsor in MOD is responsible for setting out strategies for delivering future military capability, whilst the Defence Equipment and Support (DE&S) organisation is responsible for considering how those capabilities should be sourced. The future arrangements will be determined as part of MOD’s on-going Defence Transformation and Materiel Strategy work.

Given Gray was making speeches about 3 options back in October, as we reported here,  our guess is that the intention WAS to announce the DE&S strategy here, but the relatively new Minister, Philip Hammond, wants more time to make his mind up which track to follow – not surprising as the proposal will inevitably be contentious.

But, if there has been further delay, there must be increasing morale issues within DE&S given the considerable uncertainty, and Gray himself will, I suspect, be getting frustrated. Make a decision, Minister...

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